Revisiting the Best Buy, Speakeasy Combination

Nearly a year has passed since Best Buy bought Seattle-based broadband services provider Speakeasy Inc. The plan was to add Speakeasy to the Best Buy for Business division alongside Geek Squad and the hardware and office supplies units. Best Buy has done that, although it hasn’t forced too much integration. The synergies just now are coming together, according to the company, as Speakeasy finishes training Best Buy salespeople and honing its product set. In the coming months, Speakeasy says, it aims to solidify itself, with Best Buy for Business as an alternative not only to ILECs, but to CLECs.

“I view the traditional CLECs as incumbents,” said Bruce Chatterley, Speakeasy’s president and CEO. He said SMBs tell him that even the competitive carriers now are overpriced and don’t understand their needs. In March, Speakeasy responded with off-net VoIP and soon will roll out managed services for small businesses to create recurring revenue relationships.

The off-net product lets a Speakeasy VoIP customer use any broadband provider.

“If you’re a cable operator, I think that’s a good thing because we’re not totally competitive with them,” said Chatterley. The drawback is that Speakeasy can’t control voice and date priority for off-net clients.

Because of that, the off-net offering resembles “a best-effort service” akin to Packet8’s or Vonage Holdings Corp.’s, said Brian Washburn, research director of network services for Current Analysis Inc. Last year Washburn said he feared degradation in Speakeasy’s service quality because the service provider, which maintains a premium service reputation, would be at odds with Best Buy’s budget-conscious buyers. Washburn hasn’t been able to gauge whether that’s happened, and the off-net product doesn’t carry enough weight to play into his prediction, he said. “There are no interconnection agreements required, and that’s why I don’t think [the off-net product] is that big a deal.”

The promise for the Best Buy-Speakeasy combo still lies in the Best Buy for Business channel, Washburn said. If, among other things, Best Buy for Business packages IP phones with VoIP — on- or off-net — then it will be on its way to providing services for anyone across the country, he said.

Speakeasy and Best Buy have yet to unveil firm strategies. However, managed services will be critical to the companies’ approach to businesses nationwide, said Chatterley. Speakeasy is developing those hosted packages and will release them over the next year.

Chatterley expects Speakeasy to grow its VoIP business 51 percent over last year. Speakeasy in January shifted its technique for customer acquisition from looking for businesses at the right “inflection point” — those moving offices or replacing obsolete systems and so on — to pitching a more customer-friendly, integrated access product to SMBs that promises savings of up to 35 percent.

This new positioning also eased the learning curve for Best Buy salespeople, said Chatterley, who added that training has been the toughest part of the ongoing integration.

“If you take someone out of a store and make them an outside sales rep, and now they’re selling hosted PBX into a small business, it’s going to take some time,” Chatterley explained. “Many of their reps have come up to speed very quickly — not all of them … it’s obviously a foreign concept, but not one that they haven’t been able to grasp.”

That said, Speakeasy expects to surpass the 25 percent customer growth it achieved last year, Chatterley said. And in an ailing economy, that’s welcome news.

“We think predictability is going to be a value proposition,” Chatterley added.

If the service provider side of Best Buy is able to do that, it may help offset probable decreases in the consumer electronics side of its business. TechnoMetrica Market Intelligence and ChangeWave Research report that consumer spending on electronics slowed through the first half of 2007.

“My fondest hope is we become a multibillion dollar company before people even realize we exist,” Chatterley said.

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